Option Bears Turn Up the Heat on Retreating SPDR S&P Retail ETF (XRT)

While trading activity winds down across Wall Street ahead of the long holiday weekend, Christmas shoppers are apparently still going strong. In fact, CNBC expects today to be the third busiest shopping day of the year, while also representing a rare time when Amazon.com, Inc. (NASDAQ:AMZN) may be on the backburner. Still, this isn't lifting investor sentiment, with the SPDR S&P Retail ETF (XRT) continuing its recent sell-off, down 0.4% at $44.55. The exchange-traded fund (ETF) has now lost 7.7% since its annual high of $48.26 earlier in the month, and options traders appear to be betting on more downside for XRT. 

Looking at today's options data, puts are trading at two times the pace expected, outstripping calls by a 3-to-1 margin. It appears one trader closed his 5,500-contract block of weekly 12/30 45.50-strike puts, rolling down the position to the 44.50 strike in the same series. Obviously, this trader expects the ETF to continue sliding over the next week. 

Meanwhile, another skeptical trader may be using call options to bet against XRT. Specifically, a 2,665-contract sweep was seemingly sold to open at the ETF's January 2017 45.50-strike call, so the goal here is for XRT to continue trading below $45.50 through front-month expiration, at the close on Friday, Jan. 20. A winning bet would allow the trader to keep the initial premium collected from selling the contracts. 

Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) suggests put buying has been the strategy of choice among XRT options traders. The security sports a 10-day put/call volume ratio of 6.47 across these exchanges, ranking in the high 79th annual percentile. On top of this, the ETF has a Schaeffer's put/call open interest ratio (SOIR) of 2.93, which shows put open interest almost tripling call open interest among options expiring within three months. 

No matter how you're betting, it's a good time to buy short-term XRT options. The ETF's Schaeffer's Volatility Index (SVI) of 110% ranks in the low 21st percentile of its 12-month range. This tells us premium on near-term options is relatively muted. 

Technically speaking, while the SPDR S&P Retail ETF (XRT) has struggled recently, the shares remain comfortably above a number of key levels. For example, the 60-month (or five-year) moving average sits well below at $40.70, while the year-to-date breakeven level is underfoot at $43.24. 

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